Implied Sharpe ratios of portfolios with options: Application to Nikkei futures and listed options

We propose a criterion for portfolio selection, implied excess Sharpe ratio. The implied excess Sharpe ratio is intended as an excess Sharpe ratio (versus the underlying stock) that investors can expect to enjoy from portfolios that include options and is a useful ex ante indicator that can be easily calculated. There are a variety of ways to include options in a portfolio, but we theoretically show that the combination that produces the largest implied excess Sharpe ratio is the best way to maximize the short-term Sharpe ratio. The selection process uses implied excess Sharpe ratio, which is easily calculated from stock lending fees implied by stock prices and actual stock lending fee. It does not require historical simulation or prediction of share price average growth rates and is highly transparent as it can be easily reproduced (at a low calculation cost). Hence, the implied excess Sharpe ratio is a simple but effective tool for investors seeking returns in exchange for a certain amount of risk that want to use the options market efficiently. The short-term Sharpe ratio is not necessarily the only criterion, but is a rational benchmark of portfolio performance closely related to criteria such as the long-term Sharpe ratio and maximum drawdown. To examine the benefit of the concept, we construct an investment strategy that automatically selects from multiple candidate portfolios that are made up of combinations of Nikkei futures and Nikkei listed options the portfolio with the largest implied excess Sharpe ratio. Back-testing shows that this investment strategy performs well over the long term as well.     

Solving the liquidity constraint by options on futures

The aim of this paper is to show that an option on futures may solve the liquidity constraint problem. I consider a consumer (or an investor) who wishes to discount her future income in order to finance her present consumption (investment). Under asymmetric information, such an agent may incur a liquidity constraint (credit rationing). However, the optimal constrained consumption, as a function of future income, resembles a short position of a put option written on future income. This implies that allocating savings to a long call option position on futures may restore the unconstrained relationship between the optimal present consumption and future income. The option on a futures contract is constructed so that the (future) agent’s income is correlated with some futures contract (but this is private information) on which the option is issued. The allocation of savings of the borrower to the option on futures turns out to be financially beneficial compared to the allocation of savings to the risk-free investment.     

Approximate analytic solution for Asian options with stochastic volatility

The valuation of Asian options is complicated because the arithmetic average of lognormal random variables is no longer lognormal. Furthermore, the stochastic volatility inherent in financial asset prices is easily observed. However, few academic studies consider the pricing and hedging of Asian options with stochastic volatility, despite the popularity of such options. This study extends the work of Hull and White (1987) and integrates the Taylor series expansion technique to derive an approximate analytic solution for Asian options with stochastic volatility. Numerical experiments show that the proposed approximate analytic solution performs favorably and is computationally efficient compared with large-sample simulations. The approximate analytic solution provides a practical approach for pricing and hedging Asian options with stochastic volatility and is both easy to implement and desirable in terms of computing speed.     

我国铁矿石供需矛盾分析

文章分析了我国铁矿石供需现状,并依据我国铁矿石缺口量与进出口模型,解释了我国铁矿石的供需缺口与铁矿石价格上涨的原因,同时提出了我国应采取的对策。     

Availability and settlement of individual stock futures and options expiration-day effects: evidence from high-frequency data

This study examines whether the expiration-day effects of stock options traded in Australian Stock Exchange on return, volatility, trading volume, and temporary price changes of individual stocks vary with the availability and the settlement method of individual stock futures contracts. Using transaction data of the stocks that have both options and futures contacts from 1993 to 1997, we find that options expiration has significant effects on return and volatility of the underlying stocks in absence of individual stock futures. After introduction of a cash-settled stock futures contract, the effects decrease notably. However, the switch of a futures contract from cash settlement to physical delivery promotes the expiration effects on return and volatility and boosts temporary price changes on expiration days. Finally, options expiration has little effect on trading volume. Trading activity tends to behave normally regardless whether stock futures contracts are available or not.     

A note on the implied volatility of floating strike Asian options

Decisions in Economics and Finance - In this paper, we study the short-time behavior of the implied volatility for short-time floating strike Asian options. Our method is based on Malliavin...     

An effective hybrid variance reduction method for pricing the Asian options and its variants

In this paper, we propose a variance reduction method that combines importance sampling and control variates to price European Arithmetic Asian options and its variants (i.e., Asian options plus knock-in or knock-out options) under the Black-Scholes model. The numerical results show that the proposed methods are especially efficient under the following scenarios: in the money, low volatility, more sampling dates, and higher barrier thresholds.     

内蒙古梅令沟北矿区铁矿矿床地质分析和研究

文章通过对内蒙古梅令沟北矿区铁矿的矿床地质分析和研究,为今后的开采活动提供了可靠的地质依据。     

Forecast on silver futures linked with structural breaks and day-of-the-week effect

Silver future is crucial to global financial markets. However, the existing literature rarely considers the impacts of structural breaks and day-of-the-week effect simultaneously on the volatility of silver future price. Based on heterogeneous autoregressive (HAR) theory, we establish six new type heterogeneous autoregressive (HAR) models by incorporating structural breaks and day-of-the-week effect to forecast the volatility. The empirical results indicate that new models’ accuracy is better than the original HAR model. We find that structural breaks and the day-of-the-week effect contain much forecasting information on silver forecasting. In addition, structural breaks have a positive effect on the silver futures’ volatility. Day-of-the-week effect has a significantly negative influence on silver futures’ price volatility, especially in the mid-term and the long-term. Our works is the first to combine the structural breaks and day-of-the-week effect to identify more market information. This paper provides a better forecasting method to predict silver future volatility.     

Hedging futures performance with denoising and noise-assisted strategies

Noise processing is very important to improve hedging effectiveness. However, the existing methods are mainly considered from the view of denoising strategy, and the research on noise-assisted strategy is limited. In this paper, a framework that includes both denoising and noise-assisted strategies is proposed to comprehensively analyze the impact of noise proceeding on hedging effectiveness. In detail, the EMD technology is utilized to decompose the futures and spot original returns. Then, the decomposition terms are stepwise removed or added in the opposite way to obtain the denoised and noise-assisted returns. Finally, under the minimum-CVaR framework, the dynamic hedged portfolios based on original and processed returns are constructed to test the hedging effectiveness. Based on the daily prices of CSI300, S&P500, WTI crude oil, and gold futures contract which range from February 9, 2007, to January 10, 2020, the empirical results indicate that both denoising and noise-assisted hedging strategies can decrease CVaR compare with using original return. Furthermore, denoising or adding high-intensity noise has better hedging performance than low-intensity noise, adding uncorrelated noise performs better than adding correlated noise Robustness results by changing confidence level validate the above conclusions.     

绳索取心液动冲击锤在甘肃德勒诺尔铁矿的应用探讨

使用绳索取心液动锤钻进效率高,岩心堵塞概率少的优越性,因而成为具有我国特色的一种新型钻具,其能有效地解决施工过程中常常遇到硬、碎、脆和裂隙发育地层。实验证明,采用绳索取心液动锤钻进已经取得明显的经济效益和社会效益。     

Galerkin infinite element approximation for pricing barrier options and options with discontinuous payoff

Abstract We analyze the Galerkin infinite element method for pricing European barrier options and, more generally, options with discontinuous payoff. The infinite element method is a simple and efficient modification of the more common finite element method. It keeps the best features of finite elements, i.e., bandedness, ease of programming, accuracy. Three main aspects are considered: (i) the degeneracy of the pricing PDE models at hand; (ii) the presence of discontinuities at the barriers or in the payoff clause and their effects on the numerical approximation process; (iii) the need for resorting to suitable numerical methods for unbounded domains when appropriate asymptotic conditions are not specified. The numerical stability and convergence of the proposed method are proved. Mathematics Subject Classification (2000): 65N30, 65J10 Journal of Economic Literature Classification: G13, C63     

Modelling the iron ore price index: A new perspective from a hybrid data reconstructed EEMD-GORU model

As iron ore is the fundamental steel production resource, predicting its price is strategically important for risk management at related enterprises and projects. Based on a signal decomposition technology and an artificial neural network, this paper proposes a hybrid EEMD-GORU model and a novel data reconstruction method to explore the price risk and fluctuation correlations between China’s iron ore futures and spot markets, and to forecast the price index series of China’s and international iron ore spot markets from the futures market. The analysis found that the iron ore futures market in China better reflected the price fluctuations and risk factors in the imported and international iron ore spot markets. However, the forward price in China’s iron ore futures market was unable to adequately reflect the changes in the domestic iron ore market, and was therefore unable to fully disseminate domestic iron ore market information. The proposed model was found to provide better market risk perceptions and predictions through its combinations of the different volatility information in futures and spot markets. The results are valuable references for the early-warning and management of the related enterprise project risks.     

Pricing currency options with scheduled and unscheduled announcement effects on volatility

It is well documented that exchange rate volatility is time-varying and that it can be affected by scheduled events such as money supply announcements and unscheduled ones such as spot market interventions and interest rate changes. This study provides a European event model (E model) for currency call options that explicitly addresses the volatility effects of these two classes of events. Managers who are concerned with hedging in an environment of changing volatility may find the E model useful. The E and modified Black-Scholes (MBS) models have similar average errors in predicting option price changes across event windows and do better than a naive no-change prediction. The E model tends to reduce the underpricing of convex, short-term out-of-the-money options and the mispricing of most classes of convex options.     

Currency options: Hayek and competing currencies

While monetary theory indicates the advantages of a single currency, there are compelling arguments for the UK to remain outside the euro-zone.     

NHS malaise: diagnosis and treatment options

The paper questions whether the recent reform package of the NHS will solve its ongoing problems, or whether a more fundamental reappraisal of the system is required.     

Production and hedging in futures markets with multiple delivery specifications

This paper examines the behavior of the competitive firm under price uncertainty. To hedge the price risk, the firm trades unbiased commodity futures contracts with multiple delivery specifications from which delivery risk prevails. We show that the firm optimally produces less in the presence than in the absence of the delivery risk. We show further that the concept of expectation dependence that describes how the delivery risk is correlated with the random spot price plays a pivotal role in determining the firm’s optimal futures position. Specifically, an under-hedge is optimal if the random spot price is positively expectation dependent on the delivery risk. The firm’s optimal futures position becomes indeterminate if the random spot price is negatively expectation dependent on the delivery risk.     

Intra-day futures price volatility: Information effects and variance persistence

This paper was prepared for presentation at the Conference on Nonlinear Dynamics and Econometrics, UCLA, 5–6 April, 1991, under the title ‘Information and chronological time effects in intra-day futures price volatility.’ The authors are grateful to participants of the Nonlinear Dynamics Conference and to Leigh Riddick, George Wang, and two anonymous referees for helpful comments. The BDS program was provided by W. D. Dechert and the BISPEC program was provided by Doug Patterson. The views stated within are those of the authors, and do not necessarily reflect those of the Commodity Futures Trading Commission or its staff. This paper examines the role of the rate of information arrival proxy variables, as they relate to persistence in the variance structure of minute-by-minute S&P 500 Index Futures returns series. The role of contract volume, floor transactions, the number of price changes, executed order imbalance, and an information composite in reducing variance persistence is examined. All proxy variables are found to explain a significant amount of returns variance. While the characteristics of returns data vary daily, some evidence of remaining variance persistence is found, regardless of the definition of the rate of information arrival variable. Our results suggest that utilization of a pure ARCH-type model for highfrequency returns data implies a mis-specification.     

Real options and contingent convertibles with regime switching

We consider a firm with no assets in place but an option to invest in a project. The investment is irreversible but delayable in a regime-switching economy. The firm issues equity, straight bonds (SBs) and contingent convertibles (CoCos). We provide the closed-form prices for the firm׳s securities and the pricing and timing of the option. Our numerical analyses discover that issuing CoCos instead of SBs induces much less agency cost of debt. The agency cost is higher in a boom economy than in recession but the difference is small. There is a unique CoCos׳ conversion ratio such that the agency cost arrives at the minimum value zero. The inefficiencies arising from asset substitution and debt overhang are much more significant in recession than in boom. Only if the conversion ratio is not too small, the two inefficiencies disappear during boom periods. While the effects of the conversion rate on optimal capital structure and firm value and those of supervision and jump intensity on optimal CoCos׳ coupon are ambiguous and weak, the stricter the supervision or the longer the economy remains in recession, the less the option value and the optimal SBs׳ coupon.     

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